Giving early attention to its principles and setting out its objectives, the nature of cooperation and relations with other forums or institutions would help the G20 establish the legitimacy and credibility it needs in order to evolve into a valuable and durable international public good.
The G20 is a self-created experiment in international cooperation, whose survival is necessarily not assured. The G20 has proved useful in dealing with the global financial crisis, the urgent first item on its agenda, but gaps between intentions and action have already appeared. And, whatever the G20 can achieve, those left out are bound to question its legitimacy.
The G20 must avoid being perceived as a self-selected group which tries to force its solutions on the rest of the world. A recent article by Anders Aslund, Senior Fellow at the Petersen Institute for International Economics, warns of this risk. Nothing that has been done so far warrants his paranoid interpretation of the G20 process. However, if the G20 became a forum to negotiate international treaties to which other were expected to accede, then the G20 could transform itself into the monster Aslund portrays. In that event, the new forum would be short-lived.
Perhaps by coincidence, rather than intent, the G20 has begun to operate in a manner similar to the APEC process, which as noted by Prime Minister Rudd, has adopted a voluntary approach to cooperation pioneered by ASEAN.
To succeed, the G20 will need to adopt sound principles for coordinated, voluntary decision-making on significant international issues. Decisions like this would define agreed strategies which, in many cases, would be implemented by exercising collective leadership in existing multilateral institutions, such as the IMF or the WTO.
To avoid falling into traps, guiding principles for the G20 should draw on the experience of other voluntary forums, including the OECD and APEC.
For example, the OECD’s attempt to create a Multilateral Agreement on Investment showed the danger of some economies defining proposals in too much detail before consulting others.
APEC has been able to promote quite a lot of policy convergence, but has exposed some of the limits of voluntary cooperation. Concerted unilateral decisions have led to significantly lower trade barriers, but the APEC process is widely seen to have failed due to creating even greater expectations.
The Information Technology Agreement (ITA), for example, could have been followed up in a strategic way. APEC leaders could have agreed on how to select areas where further progress could be realistically expected. That could have avoided the ‘Early Voluntary Sectoral Liberalisation’ debacle caused by an attempt to negotiate contentious issues in a voluntary process.
These examples suggest that the G20 should not attempt to negotiate the fine print of international agreements among themselves. Nor should they presume to impose a detailed interpretation of what might be acceptable to the nations who are not at the G20 table.
G20 cooperation, to be successful, will need to accept that voluntary cooperation can only expect to promote policy convergence after checking that national interests are reasonably well aligned and that there are incentives to abide by voluntary commitments. In more technical terms, voluntary cooperation can expect to be effective if, and only if, the desired policy convergence is perceived to be a positive-sum game with benefits to all.
Many global issues, such as sharing the costs of limiting climate change are certainly not seen to be positive-sum games. The long-term challenge for the G20 is to change perceptions of issues as fast as possible to widen the potential for dealing with issues by consensus-building. In the short-term, where solutions are not (or not yet) seen as positive-sum games, the G20 can facilitate negotiated solutions in existing forums.
A viable approach is to recommend principles and/or modalities to be followed up in already existing and accepted international organisations.
Such an approach could help limit global warming.
Two years ago, dealing with climate change was perceived as a ‘prisoners’ dilemma’ international game, where each government had an incentive to do nothing. Interactions among governments have succeeded in transforming the problem into one where a critical mass of governments realise that their interests require them to act. The international problem is now seen as a cost-sharing game which, while difficult, is soluble. This transformation of perceptions could have been accelerated by the G20 if it had been around earlier.
There is still an incentive for each government to do as little as possible, combined with an incentive to avoid implement promises. The task of negotiating how to share the costs of adjustment lies ahead.
The G20 should not risk its legitimacy and credibility by becoming an exclusive negotiating group. A more effective approach would be to follow up the agreement to limit temperature rise to 2 degrees celsius by building consensus on further principles and modalities. Some ingredients could be to:
- – Reaffirm the emerging consensus that governments should adopt policies, such as emissions trading or a carbon tax, giving credible market-friendly incentives to producers and consumers to adopt less carbon-intensive habits;
- – Agree on convergence towards equal emissions per head by an agreed date, such as 2050;
- – Estimate the global carbon budgets consistent with this objective and limiting temperature rise;
- – Adopt some general principles for allocating carbon budgets among economies, but leave detailed negotiations to a more inclusive process; and
- – Agree that, at least for the time being, each government will implement commitments to be negotiated by enacting, and making public, suitable domestic legislation.
Principles will also be needed for compensation by developed economies for emissions to date, including for:
- – Sharing the cost of compensation; and
- – How to use compensation to provide economic incentives to governments to demonstrate their best efforts to meet commitments.
The latter is vital in order to avoid relying on unacceptably intrusive monitoring and/or undesirable threats of trade sanctions to force compliance.
These suggestions, which draw on the Garnaut Report, are not put forward as an optimal strategy for dealing with climate change, but to illustrate the principles whereby the G20 might develop an approach to a vital issue.
This kind of approach can also be applied to other challenges, such as defending and strengthening the WTO-based system after the Doha Round.
Andrew Elek’s post on global cooperation combines comments on the workings of the G20 with a discussion of climate change policy. And this juxtaposition of issues, in a way, illustrates one of the key tensions in discussions about long-term economic policy at the global level at present – the fact that the perceived interests of rich countries and poor countries are currently on a collision course. Rich countries are increasingly concerned about the costs of long-term global growth, while poor countries are determined to promote long-term growth.
To illustrate the challenges that the G20 faces in finding a niche for itself, Andrew focuses on global climate change issues. The words climate, carbon, and emissions are used 8, 4 and 3 times respectively in Andrew’s post. But the words poverty, growth, and development are not used at all. There is surely a risk here that that if the G20 pursues approaches which are perceived as mainly rich-country issues, the effectiveness the organisation as a global forum will fall away.
Andrew points to this risk. He points out that many global issues – such as sharing the costs of limiting climate change – are currently not seen as positive-sum games. However, as he says, there is now some tentative agreement that the international problem of climate change is seen, partly, as a cost-sharing game.
One hopes that this is right. However, the sums discussed at Copenhagen as part of the international cost-sharing game were so meagre that they are serve to underline how reluctant rich countries are to put money on the table. Actions speak louder than words. Unless the G20 can soon move to a more realistic discussion of cost-sharing for action on climate change, it might perhaps be better for the G20 group to focus on other, less divisive issues.
Although the article touched on the so called self selection of big groups like the G20, it has not advanced any effective measures or principles for such groups to avoid or mitigate that tendance among those groups, or perceptions among others outside those groups.
Why do people not devise some principles or processes that can improve the representation of those groups? For example, to have a principle of voting weight associated with any members that are actually representing not only themselves but also some others outside those groups? This will create some incentives for group members to take the interests of others outside the groups.
A second issue that the article also touched on but failed to have a sound economic principle is equal per head emissions. If emissions represent a market failure, why do economists not apply the sound economic principles of tackling market failures such as externalities associated with emissions?
I guess it is all related to self-interests that rich countries will have to shoulder the main costs if such well-founded economic principles are applied. It is a well entrenched problem of economics – it is perceived to be rich countries’ tool to disadvantage the others and when it does not suit the rich, it will be abandoned.
For example, why is it the case for “convergence towards equal emissions per head by an agreed date, such as 2050”, proposed in this article, as opposed to now or even back dated to the past?
Where is the user pay principle? Where is the property right that economists and everyone talk about?